TARIFFS AND TRADE WARS

A tariff is a tax or duty that a government places on a class of imported goods (tariffs on exports are very rare). In theory, this makes the foreign products more expensive — boosting domestic makers of the product, which don’t have to pay the tax. The tariff is collected by customs officials and goes to the government.

The goal of US tariffs is to protect domestic industry by propping up American manufacturers. The hope is that as exports from other countries gets more expensive due to the new taxes, more businesses will turn to American Manufacturers to fill demand. Theoretically, that would breathe new life into industries that have been struggling for years.

Tariffs are also meant to address dumping, or the process by which an exporting country sends cheap, excess products into the global market. China is considered a major perpetrator of this.

The cost of products like beer, baseball bats and cars could go up due to the steel and aluminum tariffs, if the companies that make these products decide to pass the increased cost of steel and aluminum on to consumers.

All countries affected by US tariffs can respond by posing tariffs on products the US exports to them. This could escalate into trade wars. A trade war is one potential result of protectionism. It describes a situation in which countries retaliate against a country that imposes trade barriers such as tariffs and quotas. This could kick off a string of tit-for-tat responses that escalate international trade tensions.

The recent extreme swings in the US Equities Markets are attributed to the rumors of Trade Wars, particularly with China.

Another response from a country is to lower its currency value to offset the cost of the tariff. China recently lowered their currency value.

Currencies are valued in relationship to another currency and present another trading opportunity. Trading currencies is called Forex. Trading the future of a currency’s value compared to the US Dollar is found in the eMini Futures by Robert Roy and eMini Trader Talk.

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